Bottom Line: It’s no surprise that patience at M&G is beginning to wear out

Michael Bow
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OMETIMES appearances can be deceptive. For Gulf Keystone the opposite may be true. With pre-tax losses of $81.8m last year and a share price down 24 per cent in one of the biggest bull markets in a decade, the company is trying the patience of the city’s most patient of investors. Stock pickers like the M&G Recovery Fund, which has been unearthing unloved companies and helping turn a usually healthy return from them since the 1960s, don’t often give up a difficult cause.

While other big investors like Baillie Gifford, which used to own about six per cent of the firm, have bolted for the exits and sold, others like M&G have stuck it out. Yesterday’s intervention shows patience is wearing thin.

It’s still all too rare for institutional investors, dubbed the quiet men of the City for their tactile approach to boardroom engagement, to break ranks and voice concerns about the performance of a company – pushing the red nuclear button and publicly admonishing a company is unusual.

But the fund manager is right to criticise some of the actions at Keystone, however good its pipeline of projects. Splitting the role of chief executive and chairman is a good move and more in line with best practice in the City. So, too, is the appointment of Simon Murray, an old hand who will add ballast to the strong personality of chief executive Todd Kozel.

But pay is still too high given the size and performance of the firm. It’s difficult to justify a chief executive earning nearly $14m plus $9m in deferred cash when his company has haemorrhaged $81.8m last year.

Investor engagement also needs to improve. M&G should by rights be treated as an owner of the company by the management. Gulf Keystone seems to want good corporate governance, just like M&G does. It must now demonstrate real change.